In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Hand & Stone Massage and Facial Spa franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Hand & Stone Massage and Facial Spa franchise, based on Item 7 of the company’s 2021 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Hand & Stone Massage and Facial Spa franchise, based on Items 5 and 6 of the company’s 2021 FDD

• Section IV – Number of franchised and company-owned Hand & Stone Massage and Facial Spa outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Hand & Stone Massage and Facial Spa’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average gross sales and number of members for the 374 Hand & Stone Massage and Facial Spa franchised outlets that were open 24 months or more as of December 31, 2020

• 2020 annual gross sales and number of members for the two subsidiary-owned Hand & Stone Massage and Facial Spa outlets that were open 24 months or more as of December 31, 2020

• 2020 average gross sales and number of members for the 47 Hand & Stone Massage and Facial Spa franchised outlets that were open between 12 and 24 months as of December 31, 2020

• 2020 average gross sales for the 423 Hand & Stone Massage and Facial Spa franchised outlets, including the two subsidiary-owned outlets, that were open greater than 12 months as of December 31, 2020, by year of opening (2008 to 2019)

• 2020 average facial sales for the 421 Hand & Stone Massage and Facial Spa franchised outlets that were open greater than 12 months as of December 31, 2020, by year of opening (2008 to 2019)

• 2020 annual facial sales for the two subsidiary-owned Hand & Stone Massage and Facial Spa outlets that were open greater than 12 months as of December 31, 2020

• 2020 average gift card sales for the 423 Hand & Stone Massage and Facial Spa franchised outlets, including the two subsidiary-owned outlets, that were open greater than 12 months as of December 31, 2020, by year of opening (2008 to 2019)

• average size, first year net rent, and tenant improvement allowance for the 28 Hand & Stone Massage and Facial Spa franchised outlets that opened in 2020

Section I – Background Information

18 Things You Need to Know About the Hand & Stone Massage and Facial Spa Franchise

Launches New Incentives to Encourage Growth Through Acquisition

1.  In late February 2021, Hand & Stone Massage and Facial Spa announced that it was launching a new conversion incentive program for franchise owners. The program rewards existing Hand & Stone operators who expand their footprint by acquiring independent and non-branded spas by offering a $25,000 capital contribution, issued upon completion of the acquisition. Franchise owners who expand through acquisition and conversion will also benefit from a 50% reduction in the initial franchise fee, paying just $17,500 instead of the $35,000 fee required to open an additional unit.

2.  Kris Smith, vice president of real estate development for Hand & Stone, said, “We see this as an opportunity to grow the brand’s footprint by promoting the acquisition and conversion of existing spas into Hand & Stone locations.” Smith notes that this program provides a lucrative opportunity for top existing Hand & Stone operators to expand their portfolios. “Acquisitions provide Hand & Stone franchise owners with an existing customer base, as well as a team of massage therapists and estheticians already in place,” he said.

3.  Hand & Stone has also developed a financing arrangement with Firstrust Bank to assist franchise owners in the Mid-Atlantic and Northeast regions in securing funding for new conversions through a favorable, SBA-backed loan program. According to Smith, the conversion process can result in a 40 to 60% reduction in the build-out timeline, though the precise savings vary depending on the work required to bring the spa to compliance with Hand & Stone’s guidelines.

4.  The conversion process also minimizes build-out expenses. Smith says Hand & Stone sees a significant reduction in construction costs when converting an existing spa compared to building a new one. This incentive program comes on the heels of several conversions that the Hand & Stone brand has completed over the past couple of years and is designed in part to promote that growth strategy.

5.  Smith added, “Looking ahead, we hope to finalize 5 to 10 conversions by the end of 2021. We look forward to continuing this exciting growth initiative in the future and positioning more of our franchise partners for scalability and success.”

Crosses 500-Unit Mark as Demand for Wellness Services Grows

6.  At the beginning of August 2021, Hand & Stone Massage and Facial Spa officially surpassed the coveted 500-unit mark. Since 2004, Hand & Stone has become the premier massage and facial brand in the wellness space, with locations in 34 states and Canada. In the past 12 months alone, the brand has signed over 50 franchise agreements, including deals for 30 new spas in the first half of 2021.

7.  According to CEO John Teza, “This year, Hand & Stone is firing on all cylinders as the economy recovers and consumers increasingly look for wellness services. Now, as we celebrate this landmark achievement in the franchise world, we are excited to continue partnering with qualified prospects across the country.”

8.  Some of the new U.S. markets the brand has entered in 2021 include Tampa and Tallahassee, Florida; Holly Springs, North Carolina; Woodbridge, Virginia; Fulton Heights, Arizona; Loveland, Colorado; Long Island, New York; Birmingham, Alabama and South Jordan, Utah.

9.  In addition to its U.S growth, Hand & Stone also acquired the Canadian franchise organization Massage Experts. The agreement adds 24 Massage Experts franchise locations to the Hand & Stone Canadian-based franchised network of 32.

10.  Teza said, “This represents a strategic investment in the continued growth of our network in Canada. Our organization began in the U.S. in 2004 and expanded into the Canadian marketplace in 2009. With the acquisition of Massage Experts Canada, our North American network of franchised businesses is more than 500 strong with system wide revenues estimated to exceed $550 million dollars (US) in 2021.”

11.  Hand & Stone has also continued its momentum in 2021 by rolling out new services to appeal to the growing consumer demand for health and wellness. For example, the brand recently introduced a CBD massage and facial service.

12.  Teza added, “Our CBD offerings have been the most successful massage enhancement we’ve created in the recent past. In addition, our skin care business continues to perform incredibly well as an enhancement for our massage services. Pent-up demand on the consumer side is also continuing to drive our business forward. The personal services sector is effectively Amazon-proof and has seen great success coming out of the challenges of 2020.”

13.  Between massage and skin care services and products, spa owners can feel a sense of stability regardless of the economic climate. Hand & Stone also builds on this recession-resistant business opportunity with a membership model, which provides franchisees with access to recurring revenue. With strategic growth, continued product innovation, and a well-positioned business model, Teza says now is an opportune time for qualified entrepreneurs to join the Hand & Stone brand and build on the brand’s success in 2021 and beyond.

14.  “We are proud to have 500 units open across the country where communities can come and experience the type of wellness services they desire more than ever,” said Teza. “In addition, our size places us in the perfect middle ground between an established concept and an emerging brand with plenty of availability. This creates a truly great opportunity for franchisees.”

Company History

15.  Hand & Stone Massage and Facial Spa was founded in 2004 by John Marco, a former physical therapist, in Toms River, New Jersey. Marco had spent decades as a physical therapist and saw firsthand how fragmented the massage industry was. He felt that there was a lack of accessible retail massage locations.

16.  The first Hand & Stone Massage location was a success and Marco opened a second location the following year. Marco decided to start franchising Hand & Stone Massage in 2006 and the chain grew quickly over the next decade. By 2017, there were over 300 Hand & Stone Massage spas in operation.

17.  Today, Hand & Stone Massage and Facial Spa is the second largest massage franchise, behind Massage Envy, with locations across the U.S. and Canada.

Entrepreneur’s Franchise 500

18.  Hand & Stone Massage and Facial Spa ranked No. 94 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Hand & Stone Massage and Facial Spa franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Hand & Stone Massage and Facial Spa’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  354
• Outlets at the End of the Year:  404
• Net Change:  +50

2019

• Outlets at the Start of the Year:  404
• Outlets at the End of the Year:  454
• Net Change:  +50

2020

• Outlets at the Start of the Year:  454
• Outlets at the End of the Year:  481
• Net Change:  +27

Company-Owned

2018

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  1
• Net Change:  0

2019

• Outlets at the Start of the Year:  1
• Outlets at the End of the Year:  2
• Net Change:  +1

2020

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• This Item presents certain historical data as provided by Hand & Stone’s franchisees and subsidiary-owned outlets. Hand & Stone has not audited this information, nor independently verified this information.

• The information contained in this Item is for the period January 1, 2020 through December 31, 2020 (the “2020 Calendar Year”).

• As of December 31, 2020, Hand & Stone had 451 franchised outlets open in the United States (including two subsidiary-operated businesses) and 32 franchise locations in Canada.

• The following tables present the Average Gross Sales submitted to Hand & Stone by 423 United States franchisees, including Hand & Stone’s two subsidiary-operated businesses in Hamilton, New Jersey and Englewood, New Jersey, which are substantially similar to those being offered through the Franchise Disclosure Document and were open and operating for at least 12 months as of December 31, 2020.

• Tables #1 through #5 exclude 28 United States franchised outlets that were not open more than 12 months as of December 31, 2020, and 32 franchises located in Canada.

Table 1 – Average Gross Sales for Franchised Outlets Open 24 Months or More (Calendar Year 2020)

• Number of Outlets:  374
• 2020 Average Gross Sales:  $967,109
• Number Above/Below Average:  158/216
• Percentage Above/Below Average:  42%/58%
• Average Number of Members:  1,190
• Number Above/Below Average:  152/222
• Percentage Above/Below Average:  41/59
• 2020 Median Gross Sales:  $876,628
• 2020 High Gross Sales:  $3,062,268
• 2020 Low Gross Sales:  $81,545

Table 1a – Gross Sales for Subsidiary-Owned Outlets Open 24 Months or More (Calendar Year 2020)

• Hand & Stone’s subsidiaries HS Hamilton Spa, LLC (“HS Hamilton Spa”) and H&S Spa Management, LLC (“H&S Spa Management”) currently own and operate a Hand & Stone unit in Hamilton, New Jersey and Englewood, New Jersey.

Hamilton, New Jersey

• Year Opened:  2010
• 2020 Gross Sales:  $1,803,494
• Number of Members:  2,533

Englewood, New Jersey

• Year Opened:  2018
• 2020 Gross Sales:  $308,333
• Number of Members:  345

Table 2 – Average Gross Sales for Franchised Outlets Open Between 12 and 24 Months (Calendar Year 2020)

• Number of Outlets:  47
• 2020 Average Gross Sales:  $428,281
• Number Above/Below Average:  17/30
• Percentage Above/Below Average:  36%/64%
• Average Number of Members:  462
• Number Above/Below Average:  19/28
• Percentage Above/Below Average:  40%/60%
• 2020 Median Gross Sales:  $365,842
• 2020 High Gross Sales:  $1,034,653
• 2020 Low Gross Sales:  $129,352

Table 3 – Average Gross Sales for Franchised Outlets Open Greater Than 12 Months, by Year of Opening (Calendar Year 2020)

2020 Average Gross Sales

• Year Opened – 2008 (20 outlets):  $1,414,909
• Year Opened – 2009 (7 outlets):  $1,657,989
• Year Opened – 2010 (9 outlets, includes Hamilton, NJ location):  $1,442,307
• Year Opened – 2011 (23 outlets):  $1,229,557
• Year Opened – 2012 (25 outlets):  $1,139,726
• Year Opened – 2013 (43 outlets):  $1,014,340
• Year Opened – 2014 (50 outlets):  $965,017
• Year Opened – 2015 (56 outlets):  $920,272
• Year Opened – 2016 (47 outlets):  $946,225
• Year Opened – 2017 (43 outlets):  $825,382
• Year Opened – 2018  (48 outlets, includes Englewood, NJ location):  $601,768
• Year Opened – 2019 (52 outlets):  $439,311
• All Franchised Outlets Open Greater Than 12 Months (423 outlets):  $909,583

Table 4 – Average Facial Sales for Franchised Outlets Open Greater Than 12 Months, by Year of Opening (Calendar Year 2020)

2020 Average Gross Sales

• Year Opened – 2008 (20 outlets):  $359,195
• Year Opened – 2009 (7 outlets):  $370,938
• Year Opened – 2010 (8 outlets):  $286,555
• Year Opened – 2011 (23 outlets):  $271,968
• Year Opened – 2012 (25 outlets):  $229,397
• Year Opened – 2013 (43 outlets):  $238,207
• Year Opened – 2014 (50 outlets):  $207,161
• Year Opened – 2015 (56 outlets):  $229,939
• Year Opened – 2016 (47 outlets):  $214,444
• Year Opened – 2017 (43 outlets):  $195,640
• Year Opened – 2018  (47 outlets):  $148,258
• Year Opened – 2019 (52 outlets):  $114,705
• All Franchised Outlets Open Greater Than 12 Months (421 outlets):  $211,318

Table 4a – Facial Sales for Subsidiary-Owned Outlets (Calendar Year 2020)

2020 Facial Revenue

• Year Opened – 2010 (1 outlet):  $370,493
• Year Opened – 2018 (1 outlet):  $106,228

Table 5 – Average Gift Card Sales for Franchised Outlets Open Greater Than 12 Months, by Year of Opening (Calendar Year 2020)

2020 Average Gift Card Revenue

• Year Opened – 2008 (20 outlets):  $138,125
• Year Opened – 2009 (7 outlets):  $142,388
• Year Opened – 2010 (9 outlets, includes Hamilton, NJ location):  $159,415
• Year Opened – 2011 (23 outlets):  $117,310
• Year Opened – 2012 (25 outlets):  $100,802
• Year Opened – 2013 (43 outlets):  $89,953
• Year Opened – 2014 (50 outlets):  $88,454
• Year Opened – 2015 (56 outlets):  $76,903
• Year Opened – 2016 (47 outlets):  $89,714
• Year Opened – 2017 (43 outlets):  $81,426
• Year Opened – 2018  (48 outlets, includes Englewood, NJ location):  $63,859
• Year Opened – 2019 (52 outlets):  $58,190
• All Franchised Outlets Open Greater Than 12 Months (423 outlets):  $87,041

Table 6 – Average Size, First Year Net Rent, and Tenant Improvement Allowance for Franchised Outlets Opened During 2020

• Number of Franchised Outlets:  28
• Average Size:  2,909 square feet
• Median Size:  2,873 square feet
• Average Net Rent – First Year:  $83,916
• Median Net Rent – First Year:  $83,010
• Average Tenant Improvement Allowance:  $37.46 per square foot
• Median Tenant Improvement Allowance:  $38.25 per square foot

• For purposes of this Item 19, Gross Sales means the aggregate of all revenue collected from the sale of products, gift cards, barter or exchange, complimentary services, and services from all sources in connection with the franchised outlet, whether for check, cash, credit, or otherwise, including all proceeds from any business interruption insurance, but excluding tips received by massage therapists and estheticians, any sales and equivalent taxes that you collect and pay to any governmental taxing authority, and the value of any allowance issued or granted to any of your customers that you credit in full or partial satisfaction of the price of any products and services offered by the franchised outlet.

• For Tables 1 through 3, the Average Gross Sales is defined as the sum of the Gross Sales of the included franchised outlets divided by the total number of included franchised outlets.

• The businesses presented above range in size from 6 to 20 treatment rooms per location.

• “Average Number of Members” is the average number of members reported by the included franchised outlets who have joined Hand & Stone’s Lifestyle program as monthly, annual, or prepaid members (but excluding three-month memberships) and pay a monthly membership fee currently ranging from $49 to $69 per month.

• The Average Number of Members is defined as the sum of the members reported by the included franchised outlets divided by the number of included franchised outlets. The Average Number of Members count does not deduct suspended or frozen members who are not currently paying monthly fees.

• “Year Opened” is defined as the number of outlets that opened in the stated year, provided that the figures for 2008 also include outlets opened in the 2006 and 2007 calendar years.

• “Facial Sales” are defined as Gross Sales of skin care services and products, including facials, microdermabrasion, and peels and are included in the average gross sales above.

• The Average Facial Sales is defined as the sum of the Facial Sales of the included outlets divided by the number of included outlets.

• “Size” refers to the size of the gross leasable square footage of the outlet.

• The Average Size is defined as the sum of the Size of the included outlets divided by the number of included outlets.

• “First Year Net Rent” means the aggregate of all rental costs during the first year of operation to include rent price per square foot, taxes, insurance, and common area maintenance costs while deducting any rental abatements granted by the landlord.

• The Average First Year Net Rent is defined as the sum of First Year Net Rent of the included outlets divided by the total number of included outlets.

• “Average TI” means the average tenant improvement allowance granted from a landlord to a franchisee to contribute to the tenant’s construction build out of leasehold improvements. There were 28 U.S. locations that opened in 2020.

• “Median” represents the middle number of which ½ of the included outlets exceeded and ½ did not.

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